Blockchain Economics

Blockchain Economics
Building Societies of Trust
Melanie Swan
Philosophy, Purdue University
melanie@BlockchainStudies.org
Fullerton CA, April 16, 2018
Slides: http://slideshare.net/LaBlogga
Melanie Swan, Technology Theorist
 Philosophy and Economic Theory, Purdue
University, Indiana, USA
 Founder, Institute for Blockchain Studies
 Singularity University Instructor; Institute for Ethics and
Emerging Technology Affiliate Scholar; EDGE
Essayist; FQXi Advisor
Economics and Financial
Traditional Markets Background Theory Leadership
New Economies research group

https://www.facebook.com/groups/NewEconomies
Source: http://www.melanieswan.com, http://blockchainstudies.org/NSNE.pdf, http://blockchainstudies.org/Metaphilosophy_CFP.pdf

16 Apr 2018
1
Blockchain
Blockchain
 To inspire us to build
this vision of the
world
Source: http://www.amazon.com/Bitcoin-Blueprint-New-World-Currency/dp/1491920491
16 Apr 2018
2
Blockchain
Agenda
 Blockchain Economics
 Blockchain Basics
 ICOnomics
 Tokens
 Sample Apps
 Blockchain Economic Theory
 Future: smart Network Convergence
 Blockchain and Deep Learning
16 Apr 2018
3
Blockchain
 New economic model emerging in the blockchain
economy with distinguishing aspects
 Open platform business model (network effect valuations)
 Token system for monetary transfer
 Initial Coin Offerings as financing mechanism
 Large-scale global participative communities
 Economics: study of resource discovery and
propagation to fulfill needs (supply and demand)
1. Classical Economics (material goods)
2. Network Economics (digital goods)
3. Blockchain Economics (cryptographic assets, smart
contracts, and DApps/DACs)
DApp: decentralized application; DAC: decentralized autonomous corporation

16 Apr 2018
4
Blockchain
Open Platform Economics business model
 M&A 10x return VC exit model gives
way to open platform for value creation
 Past: proprietary database and network
 Goal: maximize users and content
generation on proprietary platform; monetize
by selling information
 Examples: Facebook, Instagram, Netflix
 Future: open platform
 Goal: maximize user participation and return
rewards to participants
 Royalty payments for software, content use
 Beneficial network effects without monopolist
market power inefficiencies
Source: https://medium.com/mit-cryptoeconomics-lab/the-blockchain-effect-86bd01006ec2
16 Apr 2018
5
Blockchain
Blockchain Economics books
2015 2016
2017
16 Apr 2018
6
Blockchain
Network Economics: Metcalfe’s Law
 The effect of a network is
proportional to the square of the
number of connected users (n2)
 Two telephones can make only one
connection
 Five can make 10 connections
 Twelve can make 66 connections
 Bootstrapping effect threshold
16 Apr 2018
7
Blockchain
Economic Wealth
 Adam Smith (1776)
 Invisible hand automatically
regulates markets
 John Stuart Mill (1848)

 A society’s wealth is its
productive capacity, not its
specie capital reserves
(mercantilist debate)
Sources: Adam Smith, 1776, Wealth of Nations; John Stuart Mill, 1848, Principles of Political Economy
16 Apr 2018
8
Blockchain
MV=PQ
 Hume (1748): quantity theory of
money
 Quantity = GDP
 The general price level of goods
and services is directly proportional
to the amount of money in
circulation, or money supply
 Money Supply x velocity of turnover
= Price x Quantity of goods/services
bought/sold
Source: David Hume, 1748, Of Interest, in Essays Moral and Political

16 Apr 2018
9
Blockchain
Examples of MV=PQ
 Fed adjusts M per V and PQ
 V of M1 = 5.5-6x/yr
 ~$5000 per person of USD currency circulating
 Lower velocity = contraction (less transactions), but
raising M can mean creating inflation (more money
chasing fewer goods)
Fed USD MV=PQ
Country X (Brasil) Real MV=PQ
Cryptocurrency X TitanCoin MV=PQ
Source: https://www.dailyfx.com/forex/education/trading_tips/daily_trading_lesson/2014/01/24/FX_Market_Size.html
16 Apr 2018
10
Blockchain
Crypto asset valuation frameworks
(Monetary Eqn
of Exchange)
Source: https://blockchainatberkeley.blog/todays-crypto-asset-valuation-frameworks-573a38eda27e
16 Apr 2018
11
Blockchain
Bitcoin Valuation example (C. Burniske)
MV=PQ
1. Project Total Addressable Market (TAM) $30 bn x 1.5=$43.6 bn
 TAM for 2014 remittances was $436 billion
2. Estimate potential percent penetration of TAM
 10% (Bitcoin’s blockchain could transact 10% of the market)
 10% x $436 billion = $43.6 billion market MV=$43.6 bn
3. Project coin velocity: 1.5 times per year
 The “same bitcoin” could be used multiple times in the
transmission of value for remittances
 $43.6B / 1.5 = $30 billion value bitcoin would need to store
4. Calculate coin valuation Mx1.5=$43.6 bn
 14.7 million coins outstanding M=$30 bn
 $30B / 14.7M = $2,000 per bitcoin $30 bn M / 14.7 m
coins = $2,000 per coin
Oversimplified: not all btc spent on remittances
16 Apr 2018 Source: https://medium.com/@cburniske/cryptoasset-valuations-ac83479ffca7 12
Blockchain
Bitcoin Valuation example (C. Burniske)
Source: https://medium.com/@cburniske/cryptoasset-valuations-ac83479ffca7
16 Apr 2018
13
Blockchain
Programmable Risk
Black Swan Smart Contracts
 Financial options (put/call) used to
control/manufacture exposure Figure 1
 Convexity (Fig. 1): control down-side
risk, upside gain, anti-fragile (robust)
 Concavity: undesirable risk profile
 Taleb: map event probabilities as
s-curve (Fig. 2) in medicine, etc.
 Convex-linear-concave profile Figure 2
 Use programmable risk dropdown

feature of smart contracts to
manage risk in more domains
Sources: Swan, M. Submitted. Programmable Risk: Black Swan Smart Contracts, IEEE;
16 Apr 2018 Taleb, Medicine: https://arxiv.org/ftp/arxiv/papers/1208/1208.1189.pdf 14
Blockchain
57% global corporations (Juniper).
$2.1 billion 2018 global spend (IDC).
$325 billion USD asset class.
1551 cryptocurrencies.
1206 token projects.
adoption.
Sources: https://www.cnbc.com/2017/07/31/blockchain-technology-considered-by-57-percent-of-big-corporations-study.html,
16 Apr 2018 https://coinmarketcap.com/all/views/all/, https://www.stateofthedapps.com/,
15
Blockchain https://blogs.wsj.com/cio/2018/02/06/business-interest-in-blockchain-picks-up-while-cryptocurrency-causes-conniptions/
 Blockchain business networks
 Single shared business processes
 Multiple private views
Source: http://timreview.ca/article/1109
16 Apr 2018
16
Blockchain
digitized assets.
instantaneous transactability.
shared business processes.
business networks. the world is your VPN

16 Apr 2018
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Blockchain
real-time balance sheets.
off-balance sheet obligations
disappear.
diminished risk.
rethink risk.
Source: http://www.europeanfinancialreview.com/?p=21755
16 Apr 2018
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Blockchain
HFT (high-frequency trading)
 HFT = program trading,
automated execution
1. Higher volume since 2008
 Institutional investor volume
fixed (3-4 bn shares/day)
 Total volume: 2x higher
 50-70% total volume = HFT
US Equity markets
2. Higher volatility
3. Tighter bid-ask spreads
4. Greater price efficiency
(no price gaps)
16 Apr 2018 Sources: Chaparro, F. 2017. Credit Suisse: Here's how high-frequency trading has changed the stock market. Business
Insider. https://speedtrader.com/how-algorithms-and-high-frequency-trading-programs-affect-your-trading/ 19
Blockchain https://snipethetrade.com/us/high-frequency-trading
net settlement.
payment channels.
digital credit systems.
rethink debt.
16 Apr 2018
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Blockchain
Payment Channels
 Levels
 Unilateral
 Bilateral (pictured)
 Community
 Multi-party
 Multi-resource
SBUX Balance Sheet

Assets Liabilities
Cash $1.2bn Stored Value
Cards $1.2bn
Source: https://www.investinblockchain.com/lightning-network-bitcoin-scaling/
16 Apr 2018
21
Blockchain
basics.
16 Apr 2018
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Blockchain
What is Blockchain/Distributed Ledger Tech?
Conceptual Definition:
Blockchain is a software protocol;
just as SMTP is a protocol for
sending email, blockchain is a
protocol for sending money
16 Apr 2018
23
Blockchain
What is Blockchain/Distributed Ledger Tech?
Technical Definition:
Blockchain is the tamper-resistant
distributed ledger software underlying
cryptocurrencies such as Bitcoin, for
recording and transferring data and assets
such as financial transactions and real
estate titles, via the Internet without needing
a third-party intermediary
16 Apr 2018
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Blockchain
Distributed Ledger Technology vs. Blockchain
Ledger: a file that keeps track of who owns what
Distributed Ledger (general form of DLT):

(1) shared transaction database among network
members, (2) updated by consensus, (3) records
timestamped with a unique cryptographic signature,
(4) in a tamper-proof auditable history all transactions
Blockchain (specific DLT w additional feature):

(5) Sequential updating of database records per
chained cryptographic hash-linked blocks
Source: restatement of https://www.ibm.com/developerworks/cloud/library/cl-blockchain-basics-intro-bluemix-trs/index.html

16 Apr 2018
25
Blockchain
information.
email.
voice.
video.
money.
internet content.
16 Apr 2018
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Blockchain
What is Blockchain?
Blockchain technology is a software; a protocol for the secure

transfer of unique instances of value (e.g. money, property,
contracts, and identity credentials) via the internet without
requiring a third-party intermediary such as a bank or government
(examples: Email over IP, Voice over IP, Money over IP)
Application Phone
Email Bitcoin
calls
Protocol
SMTP VoIP Blockchain
Infrastructure
Internet
16 Apr 2018
27
Blockchain
information.
value (money).
intelligence (brains).
networks.
16 Apr 2018
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Blockchain
smart networks.
16 Apr 2018
29
Blockchain
software.
secure cryptographic transfer.
internet.
blockchain.
16 Apr 2018
30
Blockchain
secure transfer of value, of…
money & securities.

property.
contracts.
identity credentials.
killer apps.
16 Apr 2018
31
Blockchain
(1) double-spending.
(2) Byzantine Fault Tolerance
(agreement in a distributed
network).
computer science
16 Apr 2018
Blockchain
problems solved. 32
 A ledger is like a database, a
Google or Excel spreadsheet
 Add new records by appending rows
 Each row contains information
 Account balances
 Property, who owns certain assets
 Contracts
 Memory and execution state of a
computer program
ledger.
16 Apr 2018
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Blockchain
How does Bitcoin work?
Use eWallet app to submit transaction
Scan recipient’s address $ appears in recipient’s eWallet

and submit transaction
Wallet has keys not money

Creates PKI Signature address pairs A new PKI signature for each transaction
Source: https://www.youtube.com/watch?v=t5JGQXCTe3c
16 Apr 2018
34
Blockchain
P2P network confirms & records transaction
Transactions submitted to a pool and miners assemble Transaction computationally confirmed

new batch (block) of transactions each 10 min Ledger account balances updated
Each block includes a cryptographic hash of the last

block, chaining the blocks, hence “Blockchain” Peer nodes maintain distributed ledger
Source: https://www.youtube.com/watch?v=t5JGQXCTe3c
16 Apr 2018
35
Blockchain
mining.
Proof of Work: secure but expensive.
Source: https://www.illumina.com/science/technology/next-generation-sequencing.html
16 Apr 2018
36
Blockchain
Run the software yourself:
What is Bitcoin mining?

 Mining: accounting function to record tx, fee-
based (12.5 btc x $8400 = $105,000/block)
 Mining ASICs “find new blocks” (proof of work)
 Network regularly issues random 32-bit nonces
(numbers) per specified cryptographic parameters
 Mining software constantly makes nonce guesses
 At the rate of 2^32 (4 billion) hashes (guesses)/second
 One machine at random guesses the 32-bit nonce
 Winning machine confirms and records the
transactions, and collects the rewards
 All nodes confirm the transactions and append the Fast because ASICs
new block to their copy of the distributed ledger represent the hashing
algorithm as hardware
 “Wasteful” effort deters malicious players
16 Apr 2018
Sample
Blockchain code: 37
ICOnomics.
16 Apr 2018
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Blockchain
In the news: Blockchain ICOnomics
Source: https://cointelegraph.com/news/why-bitcoin-continues-to-be-on-the-top-of-its-game
16 Apr 2018
39
Blockchain
Evolution of financing models
 ICO: fundraising method, more liquid than equity
 Conceived as project finance / capital-budgeting solution
Financing model: Pre-sell access to:
IPO Equity ownership
Crowdfunding Product
ICO Platform
16 Apr 2018
40
Blockchain
ICOs (Initial Coin Offerings)
 ICOs 4x size of VC funding 1H2017 (PitchBook)
 ICOs: $1.3 bn, VC funding: $358 mn
Cumulative ICO Funding

2/3/14 - 2/28/18
Source: https://www.coindesk.com/ico-tracker
16 Apr 2018
41
Blockchain
Mar 2018
$8.84 bn total
ICOnomics.
Source: https://www.coindesk.com/ico-tracker
16 Apr 2018
42
Blockchain
High-profile ICOs
 Telegram $850 mn, 2018e
 Filecoin $186 mn, Aug 2017
 Registered (exempt) small offering CoinList (AngelList);
Reg D 506(c)
 Tezos $232 mn, Jul 2017
 Brave, BATs, $35 mn, 30 seconds
 Gnosis; $12.5 mn, Apr 2017
 Self-regulating mechanisms
 Known % of money supply in the ICO offering
 Risk: no standards
 Lock-up: No lock-up on ICO founders coins (usually 1
year IPO), could have time-lock-up
16 Apr 2018
43
Blockchain
ICO Regulatory Stance
 US: investor protection; regulated (Jul 2017)
 ICOs and exchanges; what about smart contracts?
 ICOs vs token sales (network utility) vs crowdfunding
 Howey Test: is it a security?
1. Investment of money
2. Expectation of profits from the investment
3. The investment of money is in a common enterprise
4. Any profit comes from the efforts of a promoter or third party
 UK: caveat emptor; safer if regulated, not regulated
 China: banned, exchanges ordered to close (Sep 2017)
 Russia: regulation expected by end 2017 (Sep 2017)
 Gibraltar DLT Regulated Entities (to launch 2018)
Source: https://www.coindesk.com/ico-tracker, https://www.coindesk.com/china-outlaws-icos-financial-regulators-order-halt-token-
16 Apr 2018 trading/
44
Blockchain
Bigger context of Institutional Markets
 Global capital allocation to institutional
investment-class products
 Institutional exposure to cryptographic assets
 Current value: $125 billion
 Estimated value in 10 years: $2 trillion
 Market becoming more institutional

1. ICO and exchanges: regulated entities
2. Cryptocurrency option approval
3. Institutional exchanges handling large
customer orders ($20m+)
 Genesis Trading, Cumberland Mining,
Circle, Gemini Exchange, Project Omni
Source: https://bitcoinmagazine.com/articles/op-ed-blockchain-economy-ushering-new-world-economic-order,
16 Apr 2018 https://www.coindesk.com/standpoint-founder-bitcoin-asset-class-will-grow-2-trillion-market/
45
Blockchain
Cryptocurrency Market Capitalizations (4/18)
 S&P 500: $22.2 tn; US GDP $18.8 tn
 Crypto market cap: $256 bn (≃ top 50th of 200 countries)
Source: https://coinmarketcap.com, http://us.spindices.com/indices/equity/sp-500; List of countries by GDP (nominal) - Wikipedia

16 Apr 2018
46
Blockchain
Cryptocurrency Options & Swaps
 NY-based LedgerX: CFTC-regulated Swap
Execution Facility (SEF) and Derivatives
Clearing Organization (DCO)
 Swap execution facility, clearing Bitcoin options
 Sep 2017 began providing physically-settled put and
call options and day-ahead swaps trading
 Private trading for large customers
 LedgerX options possibly to trade on the CBOE
 Significance: cryptocurrency exposure in an
institutional product, demand could be huge
Source: https://www.bloomberg.com/news/articles/2017-07-24/bitcoin-options-to-become-available-in-fall-after-cftc-approval
16 Apr 2018
47
Blockchain
Cryptocurrency Futures
Source: http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures
16 Apr 2018
48
Blockchain
software.
tokens.
16 Apr 2018
49
Blockchain
Tokenomics
 Money: three functions
 Medium of exchange, store of value, unit of account
 Token: a more complicated and feature-rich form of
money, and a tool for enabling participants
 Programmable functions built into tokens: access, voting,
action-taking, fundraising, dividends, notification,
participation, liquidity (tradability, exchangeability)
 Tokenization: process of turning an asset, right, or

digital good into an interchangeable unit to power an
ecosystem
16 Apr 2018
50
Blockchain
participation.
voting.
choosing.
resource access.
tokens.
16 Apr 2018
51
Blockchain
Information Social Internet: Token Internet:
Internet: 2005-Present 2016-Present
1991-2005 engage with participate in the
static information content community economy
participation.
16 Apr 2018
52
Blockchain
Tokenomics
 Token types
 CarbonCoin: staked coin, proof of sequestering

units of CO2 (measured by IoTa chain + CPE)
16 Apr 2018
53
Blockchain
Tokenomics
 Co-working 1 Token = 1 Seat
16 Apr 2018
54
Blockchain
Tokenomics
 Example: LTB Coin (Let’s Talk Bitcoin coin)
 Facilitates the economic system of this media
property and podcast network
 Economic inflows and outflows, sources and uses of
capital, are denominated in the community token
 Providing listener rewards
 Accepting advertising revenue
 Pricing premium services
 Bug bounties
 Royalty payments to musicians
 MyNeighborhoodBabysittingToken might be just as
viable as MyWorkplacePaymentToken
16 Apr 2018
55
Blockchain
cryptokitties.
16 Apr 2018
56
Blockchain
Launched: Nov 2017
500,000 sold, total: $40 mn
smart contracts.
Source: http://fortune.com/2018/02/13/cryptokitties-ethereum-ios-launch-china-ether
16 Apr 2018
57
Blockchain
Google Artificial Brain 2012
Supervised Learning
cats lead tech.

Source: https://www.wired.com/2012/06/google-x-neural-network/
16 Apr 2018
58
Blockchain
network futures.
16 Apr 2018
59
Blockchain
Bitcoin: 11,108 nodes.
peer-hosted.
Source: https://bitnodes.21.co
16 Apr 2018
60
Blockchain
Ethereum: 15,619 nodes.
peer-hosted.
Source: https://www.ethernodes.org/network/1
16 Apr 2018
61
Blockchain
public chains. private chains.
trustless. mined. trusted. not-mined.
p2p software. enterprise software.
16 Apr 2018
62
Blockchain
old model. new model.
banks.
networks.
store money.
16 Apr 2018
63
Blockchain
Annual 10K, Mar 2018
“…financial institutions…face the risk that

payment processing and other services could
be disrupted by technologies such as
cryptocurrencies that require no intermediation”
toast.
https://www.coindesk.com/jpmorgan-says-it-may-have-to-adapt-to-counter-crypto-adoption
16 Apr 2018
64
Blockchain
newspapers.
networks.
power of the press.

16 Apr 2018
65
Blockchain
banks.
peer networks.
power of the wallet.

16 Apr 2018
66
Blockchain
Distributed Networks
 Radical implication: every node is a peer who can
provide services to other peers
Centralized Decentralized Distributed

(based on hubs) (based on peers)
16 Apr 2018
67
Blockchain
P2P Network Nodes provide services
 Nodes deliver services to others, for a small fee
 Transaction ledger hosting (~11,000 Bitcoind nodes)
 Transaction confirmation and logging (mining)
 News services (“decentralized Reddit”: Steemit, Yours)
 Banking services (payment channels (netting offsets))
“Classic” Peer
Banking Banking
Centralized bank tracks Network nodes store transaction

payments between clients record settled by many individuals
16 Apr 2018
68
Blockchain
“One ought to think autonomously,
free of the dictates of external
authority” - Immanuel Kant
“Multiple private currencies should

compete for customer business”
- Friedrich Hayek
cryptocitizen.
16 Apr 2018
69
Blockchain
economic theory.
16 Apr 2018
70
Blockchain
What is Economics?
 Study of the production, distribution, and
consumption of goods and services
 Individual and group decision-making about
goods and services and the consequences
 Fundamental dynamics do not change
 Wants are bigger than resources, cost of
decision-making, opportunity cost, scarcity
(material or intangible)
 Same in all forms of economies
 Classical Economics (material goods)
 Network Economics (digital goods)
 Blockchain Economics (automated smart
contracts exchanging cryptographic assets)
Source: http://blockchainstudies.org/Blockchain_Economics_CFP.pdf
16 Apr 2018
71
Blockchain
Economics: Basic Design Principles
Economic Principles
 Traditional Deployment  Blockchain Deployment

 Markets  Any interaction is a discovery
and exchange process
 Abundance mindset and
overcoming scarcity
Blockchain technology is
 Decentralized models
prompting us to rethink
supplement hierarchy
economic principles in markets,
and apply them much more  Demurrage incitatory potential
extensibly to other situations in and resource redistribution
a non-monetary sense across network nodes
 Reciprocal mining communities
16 Apr 2018
72
Blockchain
Reinventing Economics and Government
 Traditional physical goods Long Tail Effect
markets, big box retailers
 80/20 rule (Pareto distribution)
 Stock 20% of the items that comprise
80% of sales)
 Digital markets: Long Tail
 70/30 not 80/20 (power laws not Pareto distributions)
 Amazon: niche books account for 36.7% of sales
 Power laws not Pareto distributions in etailing (books,
music), software downloads (70/30 not 80/20)
 Look at the long tail as a market itself: sell less
quantity of more items
2006
 Key point: personalized markets work
Source: Anderson; Brynjolfsson et al., 2006, 2010
16 Apr 2018
73
Blockchain
Complexity Economics
 Power laws not Pareto (normal) distributions
imply a different economic model
 Random Networks
 Normal distribution
 Scale-free and
Small-World
Networks
 Power law
distribution
 Low number of hops
to reach any node
Source: https://www.coursera.org/learn/network-biology/lecture/gUKhL/small-world-and-scale-free-networks
16 Apr 2018
74
Blockchain
Long Tail Financial & Government Services
 One size does not fit all
 Any two parties can meet and transact on a blockchain
Long Tail Systems
One size
fits all
Personalized Rethink debt with

small-chunk capital
 Long Tail financial services  Long Tail governance services

 “Amazon or eBay of money”  “Amazon or eBay of government”
 Personalized banking, credit,  Personalized governance
mortgages, securities services, pay for consumption
16 Apr 2018
75
Blockchain
banking & credit.
land registry.
identity.
electricity.
Digital health wallet
vaccines & medicine.
inclusion.
Source: https://www.unicef.org.au/blog/unicef-in-action/april-2017/photos-vaccines-reach-most-remote-places-earth
16 Apr 2018
76
Blockchain
Financial Inclusion
 Blockchain: leapfrog technology
 2 billion under-banked
 70% lack access to land registries
 Need decentralized networks
because hierarchy does not scale
 Does not make sense to build out
brick-and-mortar bank branches and
medical clinics to every last mile in a
world of digital services
 Like cell phones, digital solutions
could be the answer
 eWallets and deep learning
diagnostic apps for global inclusion
Source: Pricewaterhouse Coopers. 2016. The un(der)banked is FinTech's largest opportunity. DeNovo Q2 2016 FinTech ReCap
16 Apr 2018 and Funding ReView., Heider, Caroline, and Connelly, April. 2016. Why Land Administration Matters for Development. World Bank.
http://ieg.worldbankgroup.org/blog/why-land-administration-matters-development 77
Blockchain
Monetary Economics and Financial Economics
 Systems for organizing access to resources
Economics Past, Present Finance Future

Time
Cryptocurrencies: Smart Contracts:

Spot Market Futures & Options
Market
16 Apr 2018
78
Blockchain
Hayek: Financial Institution Currencies
“Multiple private currencies should

compete for customer business”
- Friedrich Hayek
Top Global Banks based on Tier 1 Capital (2014) Top Investment Banks
16 Apr 2018 Source: Hayek, F. The De Nationalization of Money. 1976. (paraphrased); https://www.statista.com/topics/1552/banks-in-china
Tier 1 Capital: equity capital + disclosed reserves (measure of banking strength) 79
Blockchain
New Economic World Order
 Not just cryptofinance, every company own coin issue
 Cryptocurrencies and storage, banking, healthcare, financial
services, technology platforms, fundraising firms
16 Apr 2018 Source: https://bitcoinmagazine.com/articles/op-ed-blockchain-economy-ushering-new-world-economic-order

80
Blockchain
Payments as
Securities as a Service a Service
CD, DVD Auto, Home Securities

Asset
Uber, Lyft, Gett, Juno, Consumable benefits of
Streaming Music and
Service Via; Airbnb, VRBO securities: cash flow,
Video Services
HomeAway appreciation
Entertainment as Transportation, Securities as

a Service Domicile as a Service a Service
 Securities a Service
 Now have to own because uncertain future value of assets
 Access to the consumable benefits of the asset without owning
 Works if trust consumable assets will have future availability
 Need the cash flow the asset provides, not the asset itself
Source: Blockchain Fintech: Programmable Risk and Securities as a Service,
16 Apr 2018 http://futurememes.blogspot.com/2016/10/blockchain-fintech-programmable-risk.html
81
Blockchain
Future of Institutions
 Role: organize life and manage contention
 Influence persists but more choice about belonging
Historical Contemporary Future
Building Building - Website Building – Website – Credential
Bank Government Police
Church Crown
Healthcare Academia
Farther Future
DMV
Data pillars: library of all
society’s memory and
public records
Columbus’s VCs: Ferdinand

and Isabella
Corporation Church Law
16 Apr 2018
82
Blockchain
Future of Nation States
 Regulatory Arbitrage and
Crypto-Specialization
 DE-based C corporations
 Swiss & Cayman banking laws
 Estonia eResidency Program
 Gibraltar DLT Registered Entities
(ICO response)
 Malta online casinos & Bitcoin
 Transnational boundaries
 ICANN & decentralized DNS/ENS
 Namecoin (.bit domains)
 Ether (.eth domains)
 Human Rights, Refugees
16 Apr 2018
83
Blockchain
net neutrality.
censorship-resistance.
self-governance.
political.
16 Apr 2018
84
Blockchain
Exclusivity: One default

economic and political
sovereign birth regime. Plurality: Plug and play
economic and political
services regimes.
eResidency.
government as service
provider.
16 Apr 2018
85
Blockchain
Blockchain Economic Theory
 Production, distribution, and consumption of goods
and services in a Blockchain Economy…
 Same as a Classical Economy
 Underlying dynamics do not change: wants outweigh
resources, cost to decisions, scarcity of valued resources
 Institutions, Money, Nation States persist, change in form
 Assets, identity, & information now become cryptographic
 Different than a Classical Economy
 Hybrid economy of human and computational agents
 Leapfrog technology: financial inclusion and rethink debt
 New economic design principles: long tail, decentralization,
assets as a service, smart contracts
16 Apr 2018
86
Blockchain
Blockchain Economic Theory
Elements of Economic Theory Not Changing
Changing
Basic Definition
Production, distribution, consumption of goods and services X
Individual and group decision-making and consequences X
Wants exceed resources, opportunity cost, scarcity X
Shift: material goods to intangible goods and services X
Employment
Technological Unemployment (Automation Economy) X
Multi-Agent Economy (Computational Agents) X
Institutions and Nation States
Role and Influence X
Form and Choice about Joining X
Money, Capital, and Debt
Importance and Role X
Form and Access X
Principles
Long Tail Markets (Personalized Services) X
Decentralization/Financial Inclusion X
Drivers: Regulation and Technology Adoption X
Time Frame Focus: Present to Future X
16 Apr 2018
87
Blockchain
sample apps.
16 Apr 2018
88
Blockchain
peer-to-peer clearing in
financial services.
16 Apr 2018
89
Blockchain
food supply chain
contamination.
16 Apr 2018
90
Blockchain
vaccine cold
storage tracking.
16 Apr 2018
91
Blockchain
QR code resumes.
MIT Digital Certificates (diplomas); Criminal Records
16 Apr 2018
92
Blockchain
vehicle information chains.
16 Apr 2018
93
Blockchain
blockchains in space.
Jan. 13, 2018 - NASA has awarded a grant to the University of Akron for
research into data analysis and other topics related to space exploration.
The allocation will help a team led by associate professor Jin Wei to
pioneer a resilient networking system based in part on the Ethereum
16 Apr 2018
blockchain
94
Blockchain
future.
16 Apr 2018
95
Blockchain
Why is blockchain DLT needed?
Larger Scale Tiers of Projects
 The reason blockchain is needed is to work on the next
larger slate of challenges
 Key features: secure value transfer, automation, trackability
Future Projects
Next Projects
Current Projects Kardashev
scaling
Previous Projects
Space settlement
Medicine, Energy,
Energy farms, global Risk, Poverty Deep Learning Chains
comms. networks
Railroads, steam Blockchain
engines, interstate roads
Internet
Telegraph
Key Enabling Technology
16 Apr 2018
96
Blockchain
blockchain networks are a
new class of global
computational infrastructure.
future-class tech.
16 Apr 2018
97
Blockchain
 Future of AI: intelligence “baked in” to smart networks
 Blockchains to confirm authenticity and transfer value
 Deep Learning algorithms for predictive identification
smart networks.
16 Apr 2018
98
Blockchain
 Autonomous Driving & Drone
Delivery, Social Robotics
 Deep Learning (CNNs): identify
what things are
 Blockchain: secure automation
technology
 Track arbitrarily-many units,
audit, upgrade
 Legal liability, accountability,
remuneration
deep learning
16 Apr 2018
Blockchain
chains. 99
secure automated
fleet management.
16 Apr 2018
100
Blockchain
big health data.
Population:
scale.
7.5 bn people worldwide
Source: https://www.illumina.com/science/technology/next-generation-sequencing.html
16 Apr 2018
101
Blockchain
big data ≠ smart data.
clean, standardized,
interoperable.
40 EB 2020e
data.
Source: http://www.oyster-ims.com/media/resources/dealing-information-growth-dark-data-six-practical-steps
16 Apr 2018
102
Blockchain
own time regime.
speed-ups.
multiplicity.
synchronization.
blocktime.
16 Apr 2018
103
Blockchain
human-machine
collaboration.
16 Apr 2018
104
Blockchain
Technological Unemployment
 Challenge: facilitate an orderly transition to
Automation Economy
 Half (47%) of employment is at risk of automation in the
next two decades – Carl Frey, Oxford, 2015
 Why are there still so many jobs in a world that could be
automating more quickly? – David Autor, MIT, 2015
Source: Swan, M. (2017). Is Technological Unemployment Real? Abundance Economics. In Surviving the Machine Age: Intelligent
16 Apr 2018 Technology and the Transformation of Human Work. Hughes & LaGrandeur, Eds. London: Palgrave Macmillan. 19-33.
105
Blockchain
tech: scalability.
Future Scenarios political: regulation.
Favorable
Regulation social: adoption.
Slow Rapid
Adoption Adoption
Unfavorable
risks.
Regulation
16 Apr 2018
106
Blockchain
Scalability Risk: attain Visa-class processing
Bitcoin vs. other payment networks
 Visa: 2,000 transactions/sec; Bitcoin: 7/sec
Average
 Visa: $18bn/day; Bitcoin: $300mn/day transaction
volume per
Average daily transaction volume ($US mn) second
1,667
Source: Statista / Coinmetrics, http://www.altcointoday.com/bitcoin-ethereum-vs-visa-paypal-transactions-per-second

16 Apr 2018
107
Blockchain
space.
energy . (1 mn terajoules/day global consumption)
autonomous driving.
cellular genomics.
blockchain needed as secure automation

future.
technology for next-generation projects
Source: http://www.bbc.com/future/story/20170313-the-biggest-energy-challenges-facing-humanity
16 Apr 2018
108
Blockchain
Agenda
 Introduction
 Technical Overview
 Blockchain ICOs
 Blockchain Economic Theory
 Why do we need Blockchain?
 Smart Network Convergence
16 Apr 2018
109
Blockchain
Blockchain Strategies
Opportunity: Low-hanging Fruit
 Information confirmation, not
monetary transfer:
1. Cryptographic asset registries
2. Investor information services
3. Supply chain, logistics
4. CRM, Business Logic
5. Energy quoting, transmission
 Automate administrative steps
Stock Transaction Steps with human decision-making
Real Estate Purchase/Sale
Health Insurance Billing
Energy Contract Steps that can be automated with blockchain
Supply Chain Shipment
16 Apr 2018
110
Blockchain
Opportunity: Cryptographic Registries
 Asset Registries Illinois,
Arizona,
 Land, auto, home titles Delaware,
Idaho
 Stocks, bonds, insurance
Finland,
 Sales quotes, RFP Dubai,
Georgia,
 Public Documents Estonia,
Sweden,
 Driver’s license, permit Denmark
 Business registration
 Regulatory & QA compliance
 Diploma, credential
 Passport, identity document
 Voter registration, census
 Birth and death certificates
16 Apr 2018
111
Blockchain
Opportunity: Leadership Edge
 Start or join industry consortium
 Implement digital ledgers
 Automate transfer of money, assets, bids,
quotes, RFPs, ERP, supply chain
 Value chain process mapping
 Revenue-generating
 Offer blockchain-based services to clients
 Example: banks targeting larger customer base
through blockchain-based eWallet solutions
 Cost-saving
 Finance, treasury, accounting, GL/AR/AP
 Quality assurance, regulation, compliance,
audit functions
16 Apr 2018
112
Blockchain
Research Agenda
 Federal Research Data Centers
 Big data analytics, AI, deep learning, blockchain
Source: https://www.census.gov/fsrdc
16 Apr 2018
113
Blockchain
Research Agenda – Higher Ed
 Using blockchain technologies in research (scientific
and humanities fields)
 Emerging research disciplines: data science institutes,
cybersecurity, blockchain, AI/Machine Learning , digital
humanities, computational social science
 Research on blockchain technology as a research
topic (users, methods, use cases for blockchain
technology)
 Using blockchain technologies to modernize
publishing, citations, digital artifact creation
 Using blockchain technologies in higher education for digital
diplomas, credentials, transcripts; admissions applications
16 Apr 2018
114
Blockchain
Research Agenda: gamification example
 Defining academic vs industry research
Source: https://pdfs.semanticscholar.org/7bcf/9f783ca25f5e7f8ae2cabf18ba3d18c3762e.pdf
16 Apr 2018
115
Blockchain
 New economic model emerging in the blockchain
economy with distinguishing aspects
 Open platform business model
 Token system for monetary transfer
 Initial Coin Offerings as financing mechanism
 Large-scale global participative communities
 Economics: study of resource discovery and
propagation to fulfill needs (supply and demand)
1. Classical Economics (material goods)
2. Network Economics (digital goods)
3. Blockchain Economics (cryptographic assets, smart
contracts, and DApps/DACs)
DApp: decentralized application; DAC: decentralized autonomous corporation

16 Apr 2018
116
Blockchain
Conclusion
 Blockchain is a fundamental
information technology for secure
value transfer over networks
 For any asset registered in a Long Tail Systems
cryptographic ledger, the Internet is One size
a VPN for its confirmation, surety, fits all
and transfer Personalized
 Reinvent economics and

government for the digital age
 Long tail structure of digital networks
allows personalized services
16 Apr 2018
117
Blockchain
Conclusion (continued)
 A technology like blockchain is
needed for next-generation
challenges
 Financial inclusion, big health data,
global energy markets, and space
 Smart networks: a new form of
automated global infrastructure
 Identify (deep learning)
 Validate, confirm, and route
transactions (blockchain)
16 Apr 2018
118
Blockchain
blockchainstudies.org
collaboration.
16 Apr 2018
Blockchain 119
blockchainstudies.slack.com
collaboration.
16 Apr 2018
Blockchain 120
Felix M. and Daniel K. present token heat map project,
Nairobi Kenya Mar 2018
collaboration.
16 Apr 2018
121
Blockchain
Building Societies of Trust
Melanie Swan
Philosophy, Purdue University
melanie@BlockchainStudies.org
Fullerton CA, April 16, 2018
Slides: http://slideshare.net/LaBlogga
Great Pools of Capital
 Levels
 Unilateral
 Bilateral (pictured)
 Community
 Multi-party
 Multi-resource
SBUX Balance Sheet

Assets Liabilities
Cash $1.2bn Stored Value
Cards $1.2bn
Source: https://www.investinblockchain.com/lightning-network-bitcoin-scaling/
16 Apr 2018
123
Blockchain
Global FX market
 $5.3 trillion daily market
 Ripple: Payments as a Service
Source: https://www.dailyfx.com/forex/education/trading_tips/daily_trading_lesson/2014/01/24/FX_Market_Size.html
16 Apr 2018
124
Blockchain
What is a Blockchain/Distributed Ledger?
Blockchain is the tamper-resistant
distributed ledger software underlying
cryptocurrencies such as Bitcoin, for the
secure transfer of money, assets, and
information via the Internet without a third-
party intermediary
16 Apr 2018
125
Blockchain
Technical Definition
What is a Distributed Ledger?
Distributed ledgers are a new form of

distributed software architecture where
agreements on the ‘shared state’ of
decentralized and transactional data can be
established in a network of untrusted and
anonymous participants holding a replica of
the data which is ‘append-only’ updated in
chronological order through one-way hash
function encryption
Source: Paolo Tasca, Executive Director, Centre for Blockchain Technologies, University College London
16 Apr 2018
126
Blockchain
Technical Definition (continued)
What is a Distributed Ledger?
 Each transaction or event, before permanently recorded

in the ledger, is verified by a group of participants under
a pre-specified set of consensus rules
 Once entered, information can never be erased as a
result of the timestamp included in it
 The ledger contains all the transaction history and each
transaction is tamper-proof, publicly or privately
auditable (traceable) and no-reversible
 Thus a distributed ledger is a ‘trust machine’ with which
people can share value, such as currency, directly and
securely without any intermediary
16 Apr 2018
127
Blockchain
What is a Ledger?
 A file keeping track of who owns what
 Double-entry bookkeeping
 Korea Goryeo dynasty (918-1392) Marco Kublai
Polo Khan
 Republic of Genoa (1340) Cash $100 $100
Assets $50 $50
Kublai Khan sells Marco Cash $90 $110
Polo $10 assets Assets $60 $40
16 Apr 2018
128
Blockchain
History of Ledgers
Source: https://www.coindesk.com/information/what-is-a-distributed-ledger
16 Apr 2018
129
Blockchain
Technical Definition
What is a Blockchain?
A blockchain is a type of distributed ledger

technology in which confirmed and validated
batches of transactions are held in blocks,
and the blocks are linked (chained) in a
tamper-resistant append-only chain which
starts with a genesis block and where each
block contains a hash of the prior block in
the chain
16 Apr 2018
130
Blockchain
Why is it called blockchain?
Ledger (chain) of sequential transaction blocks
Block 10 Block 11 Block 12
 Each new block starts by calling the last block, so a

cryptographic chain of transactions is created
 Every 10 minutes, the latest block of submitted
transactions is validated (by cryptographic mining) and
posted to a single distributed ledger
Source: Satoshi Nakamoto whitepaper: https://bitcoin.org/bitcoin.pdf, https://blockexplorer.com
16 Apr 2018
131
Blockchain
Agenda
 Distributed Ledger Applications
16 Apr 2018
132
Blockchain
Key blockchain functionality
 Secure information exchange
 Asset confirmation and transfer
 Automated coordination
 Example: fleet management of drones,
autonomous driving, robotics, clinical trial
patients, cellular therapeutics
 Blockchain: automated, secure

coordination system with remuneration
and tracking
16 Apr 2018 Source: Swan, M. Philosophy of Social Robotics: Abundance Economics. Sociorobotics, 2016.
http://www.melanieswan.com/documents/SocialRobotics.pdf. 133
Blockchain
Financial Services
 Shared ledger
 Instantaneous transaction
Shared Ledger
validation (t=0, not t+3)
 Settlement, clearing,
 Custody, insurance
 Secure, lower risk, cheaper
 Financial assurity
 Securities asset registries
 Automated clearing
 Quoting, deal placement
 Billing, settlement
16 Apr 2018 Source: https://www.cbinsights.com/blog/financial-services-corporate-blockchain-investments

134
Blockchain
Supply Chain and Logistics
 $54 trillion global supply chain, $23
trillion tied up in receivables
 Sweetbridge Bridgecoin cryptocurrency
(US CFTC-compliant commodity)
 Tamper-proof record-keeping
 SKU chain PopCodes (proof of
provenance codes)
 Confirmation, notification, payment
 Register assets and inventory
 Assure provenance, custody
 Track quantity and transfer of assets
(pallets, trailers, containers) moving
through supply chain nodes
16 Apr 2018
135
Blockchain
Energy
 Blockchain energy projects
 Enerchain: trading (NE Europe)
 BTL Interbit blockchain energy
platform: trading (Vancouver CA)
 PONTON: DSO, TSO, aggregator,
generation power-balancing (Austria)
 Automatic markets
 “Energy Internet” - smart buildings
on regional energy smartgrids
 Smart resource self-pricing
 Load-balancing
 Source fungibility: wind, solar power
 Energy price and trade validation
16 Apr 2018 Sources: https://www.newscientist.com/article/2079334-blockchain-based-microgrid-gives-power-to-consumers-in-new-york,

https://enerchain.ponton.de/index.php/16-gridchain-blockchain-based-process-integration-for-the-smart-grids-of-the-future 136
Blockchain
Healthcare
 EMR (electronic medical record)
 Personal health records
 Users key-permission doctors to records
 Digital health wallet
 Identity + EMR + health insurance + payment
 Health insurance billing chains
 Automated claims processing
 Price-quoting for medical services
 Health Data Research Commons
 Biobanks, QS (DNA.bits), genome files
Digital health wallet
16 Apr 2018 Source: http://futurememes.blogspot.fr/2014/09/blockchain-health-remunerative-health.html

137
Blockchain
Politics: governance services
 Blockchain weddings (Bitcoin, Ethereum)
 Public document registries
 Titling Registries
 Local government RFPs for home, auto, land
 Legal services: register and attest
 Contracts, IP, agreements, wills registries
 Proof of Existence: hash + timestamp + blockchain record
 Voting
 Quadratic voting (interest), PageRank (relevance)
 Delegative democracy, random sample elections
 Opt-in personalized governance services
 Composting vs education
16 Apr 2018 Sources: http://merkle.com/papers/DAOdemocracyDraft.pdf, http://www.proofofexistence.com/, https://bitnation.co/ , World’s First

Blockchain Marriage: David Mondrus and Joyce Bayo, 10/5/14, ConsenSys wedding : Kim Jackson and Zach LeBeau, 11/2/15 138
Blockchain
Humanitarian
 Refugee identity system
 Phone access: smartphone eWallet, SMS
 Object access: card, paper wallet, pendant,
ring, keychain, tattoo, implantable chip
 Biometric access: word phrase, fingerprint,
iris, facial scan
 Financial inclusion, access to learning
 Smart contracts for literacy
 Bitcoin MOOCs “Kiva for literacy”
 Open-source FICO scores
 Decentralized credit bureaus
 Remittance, blockchain-tracked aid
16 Apr 2018
139
Blockchain
The Farther Future
Swan’s Theory of Computation
 Basic physics discovery drives computation paradigms
 Gravity: emergent space, time, geometry & dynamics
Scale Physics Discovery Computation Device
Classical scale
Newton Difference Engine
(1×101) (1687) (1786)
Atomic scale Quantum Mechanics Transistor

(1×10−9) (1905) (1947)
Quantum Computing
Planck scale Quantum Gravity ??

(1×10−35) (2016) (2075e)
Source: “There’s plenty of room at the bottom” – Feynman; the other bottom, the Planck scale
16 Apr 2018
140
Blockchain
Agenda
 Smart Network Convergence
16 Apr 2018
141
Blockchain
New Technology
Better horse AND new car
16 Apr 2018
142
Blockchain
Smart Network Convergence Theory
Smart networks are computing networks with

intelligence built in such that identification
and transfer is performed by the network
itself through protocols that automatically
identify (deep learning), and validate,
confirm, and route transactions (blockchain)
within the network
Source: Swan, M. & de Filippi, P. (2017). Introduction, In Toward a Philosophy of Blockchain. Swan, M. & de Filippi, P., Eds.
16 Apr 2018 Metaphilosophy. New York: Wiley & Sons. 48(5).
143
Blockchain
Smart Network Convergence Theory
Two Fundamental Eras of Network Computing
 Network intelligence “baked in” to smart networks

 Blockchains to transfer value, confirm authenticity
 Deep Learning algorithms for predictive identification
Source: Expanded from Mark Sigal, http://radar.oreilly.com/2011/10/post-pc-revolution.html

16 Apr 2018
144
Blockchain
What is Deep Learning?
Deep learning is a computer program that can
identify what something is
Technical Definition:
Deep learning is a class of machine learning
algorithms in the form of a neural network that
uses a cascade of layers (tiers) of processing
units to extract features from data and make
predictive guesses about new data
Source: Swan, M., (2017)., Philosophy of Deep Learning, https://www.slideshare.net/lablogga/deep-learning-explained

16 Apr 2018
145
Blockchain
Next Phase
 Put Deep Learning systems on the Internet

 Need blockchain registration, security, and audit tracking
 Immediate Application: Autonomous Driving
 Smart networks: deep learning + blockchain
 Deep Learning: identify what things are
 Blockchain: secure automation technology
 Track arbitrarily-many units, audit, upgrade
 Legal liability, accountability, remuneration
16 Apr 2018
146
Blockchain

Blockchain Economics

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Blockchain Economics

Building Societies of Trust

New Economies research group

Source: http://www.melanieswan.com, http://blockchainstudies.org/NSNE.pdf, http://blockchainstudies.org/Metaphilosophy_CFP.pdf

DApp: decentralized application; DAC: decentralized autonomous corporation

 John Stuart Mill (1848)

Source: David Hume, 1748, Of Interest, in Essays Moral and Political

Fed USD MV=PQ

Country X (Brasil) Real MV=PQ

Cryptocurrency X TitanCoin MV=PQ

 Use programmable risk dropdown

business networks. the world is your VPN

SBUX Balance Sheet

Ledger: a file that keeps track of who owns what

Distributed Ledger (general form of DLT):

Blockchain (specific DLT w additional feature):

Source: restatement of https://www.ibm.com/developerworks/cloud/library/cl-blockchain-basics-intro-bluemix-trs/index.html

Blockchain technology is a software; a protocol for the secure

money & securities.

Scan recipient’s address $ appears in recipient’s eWallet

Wallet has keys not money

Transactions submitted to a pool and miners assemble Transaction computationally confirmed

Each block includes a cryptographic hash of the last

What is Bitcoin mining?

Financing model: Pre-sell access to:

IPO Equity ownership

Cumulative ICO Funding

 Market becoming more institutional

Source: https://coinmarketcap.com, http://us.spindices.com/indices/equity/sp-500; List of countries by GDP (nominal) - Wikipedia

 Tokenization: process of turning an asset, right, or

 CarbonCoin: staked coin, proof of sequestering

cats lead tech.

“…financial institutions…face the risk that

power of the press.

power of the wallet.

Centralized Decentralized Distributed

Centralized bank tracks Network nodes store transaction

“Multiple private currencies should

 Traditional Deployment  Blockchain Deployment

Long Tail Systems

Personalized Rethink debt with

 Long Tail financial services  Long Tail governance services

Economics Past, Present Finance Future

Cryptocurrencies: Smart Contracts:

“Multiple private currencies should

16 Apr 2018 Source: https://bitcoinmagazine.com/articles/op-ed-blockchain-economy-ushering-new-world-economic-order

CD, DVD Auto, Home Securities

Entertainment as Transportation, Securities as

Bank Government Police

Columbus’s VCs: Ferdinand

Exclusivity: One default

Source: Statista / Coinmetrics, http://www.altcointoday.com/bitcoin-ethereum-vs-visa-paypal-transactions-per-second

blockchain needed as secure automation

DApp: decentralized application; DAC: decentralized autonomous corporation

and transfer Personalized

 Reinvent economics and

SBUX Balance Sheet

Distributed ledgers are a new form of

 Each transaction or event, before permanently recorded

A blockchain is a type of distributed ledger

 Each new block starts by calling the last block, so a

 Blockchain: automated, secure

16 Apr 2018 Source: https://www.cbinsights.com/blog/financial-services-corporate-blockchain-investments

16 Apr 2018 Sources: https://www.newscientist.com/article/2079334-blockchain-based-microgrid-gives-power-to-consumers-in-new-york,